Financial Responsibility Flashcards
financial planning-
1st- analyze your current financial situation (savings account, income, financial responsibilities)
2nd- identify short term & long term financial goals.
3rd- identify ways to reach the goals you’ve identified
4th- identify advantages & disadvantages to goal reaching strategies
5th- decide on course of action and begin implementing path towards goal.
6th- periodically review & revise financial plan.
Personal financial planning-
Process of creating & achieving financial goals.
Inflation risks-
Prices on an item or service may rise or fall.
Income risks-
Unemployment or other drops in income.
Interest rate risks-
Interest rates might rise or fall before you take out a loan for a car, college education, or house. The interest rate will also effect how much money we earn from savings accounts where interest is paid.
Personal risks-
Individuals may also encounter situations due to health, safety and so on that can create challenges in personal financial goals. Also brand choice may require costly maintenance or repairs.
Opportunity costs-
The things that you give up when you make a choice.
Time value of money-
Refers to the increases in an amount of money because of the interest earned on the money
Future value-
An amount of money multiplied by the interest rate and the amount of time that the money will be earning interest.
Income-
Monetary payment that we recieve in exchange for our labor, goods, or services
What are the 3 types of income?
earned income, investment income, passive income
Earned income-
What we receive due to our personal efforts, labor, or goods. Includes wages or salary from a job, tips, or other bonuses.
Investment income (portfolio income)-
The dividends and interest we earn on stocks, bonds or savings accounts. Can also come in the form of rent that tenants pay to an owner of real estate.
Passive income-
Money that individuals receive from business activities that they are not actively participating in. Also could be social security, disability, income assistance, Inheritance, gifts, prizes, or lottery.
What are some factors that can influence someone’s income?
the skills or talents the person possesses, formal education, career choice, state of the economy.
What do many financial goals require?
a combination of money, time, & energy(work)
Shared decision-making-
Involves having two or more people negotiate or compromise to make financial decisions.
What are advantages of shared decision making?
It brings the decision into multiple viewpoints. This can help reduce negative financial decisions that are made due to emotions or impulse,it can slow down the decision making process & help see the advantages/ disadvantages of each decision.
What are the disadvantages of shared decision making?
The process can take time, it can create an atmosphere of competition, one or more individuals may not feel confident enough to voice their opinions or may be more focused on pleasing the others.
What are a few strategies you could use in shared decision making?
Set up the right atmosphere for discussion, make every individual feel like their opinions are important & valued, list priorities to guide discussions & decisions.
As we age the number and complexity of financial decisions we make increase.
TRUE
There are two type of means for achieving financial goals. You need to either increase your savings or reduce your spending.
TRUE
You should revisit your financial goals?
A few times a year
Shared decision making is always a positive strategy to take.
FALSE
